Management Accounting Report: Oshodi Plc Analysis and Solutions

This report delves into the realm of management accounting, focusing on Oshodi Plc, a manufacturing company. It begins by defining management accounting and its systems, including price optimization, cost accounting, inventory management, and job costing. The report then explores management accounting reporting, detailing various reports such as performance reports, accounts receivable aging reports, budget reports, and trend analysis reports. It highlights the benefits of these systems in enhancing efficiency, profitability, and decision-making. Furthermore, the report demonstrates the application of marginal and absorption costing techniques, providing calculations and interpretations. It also examines planning tools for budgetary control and analyzes how management accounting techniques can identify and resolve financial problems, leading to sustainable success. The report concludes with a comprehensive overview of the integration of these elements within organizational processes. This report is a valuable resource for students studying finance and management accounting on Desklib.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management Accounting & Its Systems:...............................................................................1
P2 Management Accounting Reporting:......................................................................................3
M1 Benefits of Management Accounting Systems:....................................................................4
D1 Integration of management accounting system and management accounting reporting in
organizational processes:.............................................................................................................5
TASK 2............................................................................................................................................5
P3 Calculation of cost using management accounting techniques:.............................................5
M2 Applying a range of management accounting techniques:....................................................6
D2 Interpretation of profit as calculated by different costing techniques:...................................7
TASK 3............................................................................................................................................7
P4 Different types of planning tools used for budgetary control:................................................7
M3 Use of planning tools and their application in forecasting budgets:.....................................9
TASK 4..........................................................................................................................................10
P5 Management accounting techniques used to identify financial problems:...........................10
M4 Analysis of how financial problems can lead an organisation to sustainable success:.......11
D3 Planning tools respond appropriately to solving financial problems to lead organisations to
sustainable success:....................................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13
1

INTRODUCTION
At the beginning of nineteenth century, the huge private business owners felt the need of
such system or structure that can help the internal stakeholder to control over the internal
environmental factors of the business so that organization can survive. For that purpose, an
accounting system has been created that is called management accounting which is different
from traditional financial accounting in so many aspects (Ahmad, Ismail and Anantharaman,
2015).
For optimistic knowledge of management accounting term, the new trainee managerial
accountant of Oshodi Plc, which is a manufacturing company involved in production and
distribution business of JOJO fruit juice products for all age brackets, is presenting a repost that
covers definition of management accounting, management accounting system and reporting and
planning tools and budgetary control process (Management accounting, 2019). It also includes
solution of financial problems by the help of financial governance techniques and critical
evaluation of entire repost in different parts.
TASK 1
P1 Management Accounting & Its Systems:
Management accounting: Management accounting which is also known as managerial
accounting is a professional method to represent all financial and non-financial data in such a
skilful manner that internal stakeholders such as managers and directors can use this information
in organizational planning and decision making in order to achieve organizational goals
(Angelakis and et.al., 2015). This accounting method is not mandatory to be adopted hence it
does not follow any specific formate which make it easy, adaptable and convenient for the
company.
Management Accounting System: The further step in process of managerial accounting,
is to create management accounting system. This system is formed to collect, record, prepare and
present different accounts and estimations for inside stakeholders such as managers. It records
and presents a whole approximation prospect of operations and transactions which may take
place in particular time. These systematic statements also provides assistance in preparation of
financial accounts and documents of Oshodi Plc at the end of financial year. The establishment
follows various types of management accounting systems which are:

Price Optimisation System: Price optimisation system is a mathematical tool that
studied about the customer behaviour towards different pricing policies of various products. This
system is used to decide and control the prices of different products at the same time. It examines
the flow of demand with the fluctuation in price at different levels so that the best price for the
product can be opt out in accordance with customer needs (Berry, Broadbent and Otley, 2016). It
also consider the effective life cycle of the product, competitors' pricing policy, profit margin
goals, etc. The Oshodi Plc uses price optimisation system in tailoring the prices of its fruit juices
for various customer segments by evaluating their responses to the pricing policy. The
administration of the company also take the help of this system in deciding pricing structure for
initial pricing, promotional pricing and discounted pricing.
Cost Accounting System: Cost accounting system is a part of managerial accounting that
revolves around the cost calculation, cost analysis and cost reduction. This system is a structure
that assists the manufacturers of Oshodi Plc to record the stream of assorted costs in order to
manufacture of each product. This accounting system consists approximation of different fixed
costs as well as variable overheads, allocation of cost centres and absorption of costs. The
essential for a good cost accounting system is to be flexible and easy. With the help of flexible
cost accounting system, respective firm is capable to calculate appropriate cost and ascertain the
profitability of the company.
Inventory Management System: This management accounting system is related with
management and supervision of inventory and non-capitalized assets of the enterprises. It helps
the managers in keeping a view over the flow and movement of inventory available within the
firm for the sale. This assists the management in advanced operation and cost calculation for
carrying and selling the products. The line manager of selected firm is capable to track goods
through the entire production and distribution process or the portion of it a business operates in.
this system includes each and everything from warehousing to dispatching for sale, production
to retailing and all the movements of stock and parts between.
Job Costing System: Job costing method is used by the companies when every
manufactured unit or batch of product has specific significations from each other in terms of
quality, quantity, measurements, etc. Job costing systems determine manufacturing costs
systematically by dividing them in overhead, direct labour and direct material costs and
estimating them at their actual value (Bhattacharya, 2014). The goods produced on customised
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specifications is sent to the clients straight away and can not be included in cost accounting or
inventory management system, therefore the administration generates this costing system for job
costing. The management also measures efficiency and performance of the employees in order to
achieve their set goals by using the information provided by job costing method.
P2 Management Accounting Reporting:
Management Accounting Reports: The process of management accounting reporting
assists the management in preparation of appropriate managerial accounting reports which
contain estimations, forecasts and actual effective outcomes related to different activities and
operations. These managerial reports provides accurate financial and statistical data and
information to the managers for making critical business decisions and planning strategies for
success of business objectives. There are so many types of accounting reports generated by the
managerial accountant of Oshodi Plc which are elaborated as below:
Performance Report: Performance report is basically a type of report card provided to
any person or task regarding their efficiency and effectiveness in context with achieving the
goals. This report reviews the performance of each employee as well as entire organization
(Charifzadeh and Taschner, 2017). Top management uses this report to make key strategies for
the future operations and reward the personnels when they perform as they commit while laid off
them who are under performers or dealt with them accordingly. This report also suggests points
towards flaw with the setup. The managers of respective firm prepare performance report for
every employee so that a deep insight can be seen regarding employee performance and
effectiveness.
Accounts Receivable Aging Report: When a business relies hugely on credit terms, an
accounts receivable ageing report is vital for the organization. This report contains all the
essential and material information about debtors and amount that has to be recovered from
customers. This report helps in breaking down the leftover balances of clients into particular time
periods and permits managers to determine the defaulters as well as discover issues in the
company's debtor turnover procedures and policies. Oshodi Plc instructed its managers to
generate this kind of report on a regular basis so that it can indicate the management team to
collect receipts from debtors on time, reduce the ratio of bad debts and liquidity of the firm can
be maintained properly.
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Budget Report: Budgets reports are very crucial in analysing company performance and
are generated for whole enterprise as well as various departments. A budget report is created
with the help of previous budgets, forecasted budget for current period and data available
regarding actual results (Englund and Gerdin, 2018). This report assists the management in
finding out the variances between standard estimations and real time outcomes and reasons
behind these variances so that remedial or favourable actions can be taken and performance and
productivity of the firm can be improved. Directors of the selected firm uses these budget reports
to cut off the costs, offer better employee rewards and incentives and their terms and conditions
with suppliers and vendors.
Trend Analysis and Forecasting Reports: These trend reports basically comprise the
information about market patterns and trends of product costs, qualities and prices as well as the
deviation between actual and predicted estimations. This report also determines the reasons
behind these variances. These reports provides the assistance to the management of the company
to analyse and examine market trends and utilize these informations in order to prepare budgets,
improving product quality according to the customer requirements and dividing the costs.
Management of Oshodi Plc creates this report to analyse competitive strategies, enhance the use
of technology and betterment of its fruit juice products regarding health of its consumers.
M1 Benefits of Management Accounting Systems:
According to the applications of different management accounting systems in various
situations presented above, benefits of these systems can be defined as below:
Managerial Accounting
Systems
Benefits
Price Optimisation System  The management of Oshodi Plc is able to analyse the
behaviour of the customers regarding different prices.
 It is helpful in maximisation of profit margin with the help
of customer segmentation.
Cost Accounting System  This system can measure the efficiency in production
procedures and aid in improving the quality of the product.
 Respective firm is capable to reduce and fix its product
prices with the use of this costing system.
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Inventory Management
System
 This system helps in improving efficiency and productivity
by saving valuable funds, space and time.
 The management can eliminate the shortage of inventory
situation and create a satisfy customer base.
Job Costing System  It helps the management of selected firm in evaluating all
type of costs in manufacturing process.
 This system also helps in evaluation of quality of work
done and employees as well.
D1 Integration of management accounting system and management accounting reporting in
organizational processes:
For the improvement and growth of an establishment, management accounting, its
systems and reporting plays an important role. Different management accounting systems helps
in creating a solid structure for the estimations and forecasting of organizational objective and
aims while reporting system and various reports provides data and information regarding
effectiveness and performance of the whole enterprise as well as every employee and activity
which eventually helps in making futuristic plans, strategies, policies and decisions. Survival of
the Oshodi Plc may be in danger without the help of these accounting and reporting systems.
TASK 2
P3 Calculation of cost using management accounting techniques:
Marginal Costing: Marginal costing is a method which proposed that all variable cost
related to production are allocated to cost units while all fixed overheads for the period are fully
written off against the contribution (Broccardo, 2014).
Marginal costing:
Particulars November (£) December (£)
Sales 500000 600000
Less: Cost of sales
Direct Material Costs -180000 -216000
Direct Labour costs -40000 -48000
Variable Production Overheads -30000 -36000
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Contribution 250000 300000
Less:
Variable selling overheads (10% sale value) -50000 -60000
Fixed selling expenses -14000 -14000
Fixed Administration Overhead -26000 -26000
Fixed production overheads -99000 -99000
Net Profit 61000 101000
Absorption Costing: This method says all the costs related to production should be
assigned to cost units whether they are fixed or flexible. It includes direct material, direct labour
and all fixed and variable overhead cost in cost of production (Guenther and et.al., 2015).
Absorption costing:
Particulars November (£) December (£)
Sales 500000 600000
Less: Cost of sales -340000 -408000
Gross profit 160000 192000
Variable selling overheads (10% sale value) -50000 -9000
Fixed selling expenses -14000 -60000
Fixed Administration Overhead -26000 -14000
Under/over absorbed prod expenses 9000 -26000
Net Profit 79000 83000
Working note:
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M2 Applying a range of management accounting techniques:
Standard costing: It is a costing technique used by management to identify and calculate
variance between actual cost of the goods that were produced & cost that should have been
occurred. For a manufacturing company, this consists of predetermined material, direct labour,
overhead cost and is used to calculate COGS as well as value of inventory (Kedia, Koh and
Rajgopal, 2015).
Normal costing: It is defined as method of costing which is used to derive cost for
products & services. For a manufacturing company, this comprises of actual cost of materials,
direct labour & production overhead.
D2 Interpretation of profit as calculated by different costing techniques:
As seen in the marginal costing statement, there is a high rise in the net profit figure
calculated for both the months i.e. November and December. It is because this technique does
not consider fixed overheads or inventory in that manner. For the income statement prepared
according to absorption costing technique, the net profit figure for both the months i.e.
November & December have a minor rise. This is because of a huge downfall in the under/over
absorbed production overheads as compared with both the months.
TASK 3
P4 Different types of planning tools used for budgetary control:
Budget: It is defined as a process wherein organisations prepare estimates for the future
gains & losses during the forthcoming year. This includes providing an approximation of all the
budgeted expenses as well as income which can occur during an accounting year. For that
purpose, a company can analyse prior year's budget to get a brief idea of how much funds should
be allocated to each functional department like production, sales, manufacturing, branding,
R&D, packaging & labelling etc (King and Clarkson, 2015). of the organisation. It is required in
order to achieve profitability & liquidity. For the production of JOJO fruit juice, Oshodi PLC
assigns and allocates finances to each functional unit within the company so that the managers
are able to produce good quality juices with attractive packaging.
Budgetary control: It refers to a systematic procedure where different kinds of budget
are prepared by management in order to achieve growth & welfare of the firm. This involves
analysing various activities in an organisation and then allocating funds accordingly. It consists
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of a variety of budgeted statements like capital, operational, cash, master, zero-based, fixed etc.
The managers are required to assess Oshodi PLC's performance and then allocate finances to
each functional unit so that they are utilised by putting efforts efficiently. In relation to this, the
manufacturing company prepares a budgetary control procedure wherein forecasts are prepared
for any future gains or losses. Some of them are explained below:
Capital budget: It refers to a process of evaluating investments and huge expenses in
order to obtain best return of investment. This is a way by which Oshodi PLC analyses how
much finance is required by the management in order to achieve goals & objectives of future
perspectives for the company (Vladu, Amat and Cuzdriorean, 2017). Usually, these budgets are
required by managers to identify any potential projects or long-term strategies so that the
company can attain high profit margin. Oshodi PLC selects an appropriate investment appraisal
technique i.e. NPV, IRR, ARR etc. due to which it is able to invest in long-term projects with
having an idea about own existing profitability situation with the help of capital budget. Some of
the pros and cons of using capital budgeting by the company are mentioned below:
Advantages:
 It helps Oshodi PLC in choosing of appropriate investment appraisal techniques like
NPV, IRR, Payback period, ARR etc. for investing in future or current projects.
 Capital budgeting technique helps in determining the risks involved in an investment
opportunity and states hoe these can affect returns of a company.
Disadvantages:
 It requires an estimation of future cash inflows & outflows which is hard to determine as
any events in the future are uncertain.
 This can affect long-term durability & profitability of Oshodi PLC in case a wrong
capital budgeting decision has been made.
Flexible budget: It is a type of budget which can flex or adjust itself with any change in
sales volume or activity. This is also known as a variable budget as it uses revenue & expenses
produced in the current year as a baseline to estimate how these will modify with changing level
of output (Vardon, Burnett and Dovers, 2016). These are beneficial for the management as they
can easily alter any amount of income or expense due to the nature of this forecast. Oshodi PLC
prepares flexible budget for the costs that vary with change in level of sales volume like
packaging & branding charges of JOJO fruit juice.
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Advantages:
 A flexible budget can update itself in diverse or adverse conditions by modifying with
each level of sales volume.
 With the help of this budget, Oshodi PLC can change the price of JOJO fruit juice during
change of season. For example, in summers it can increase the cost due to high demand
whereas during winters the company can low down the value of its products.
Disadvantages:
 It is subject to manipulation as the cost of products or services can change easily due to
its variable nature.
 During peak season, it can be a time-consuming process for Oshodi PLC as they will
have to consider the price of each product & service with change in output.
Zero-based budget: It is a type of budget which is prepared from scratch without
considering any prior expenses or income. These are usually started from a zero-base by
analysing all the gains & losses that can arise during an accounting year (Masztalerz, 2014).
Mostly, this requires justification of each and every amount considered while preparing a
forecast for the future. Oshodi PLC analyses the customer's expectations as to what
diversification they would want in JOJO fruit juices. It can be a modification in price, increasing
the quantity of the product or making it available in tetra packs which can be used by the
consumer for travelling purpose.
Advantages:
 It is easy to allocate resources as Oshodi PLC sell large carton of juices to suppliers
which makes it convenient for the company to efficiently distribute among different chain
of shops or stores.
 This improves co-ordination and communication among staff members as it requires
decision-making at each step of preparing a forecast.
Disadvantages:
 It requires well efficient staff who carry an understanding of all the line items used in
producing of budget since this is prepared from a zero-base.
 Zero-based budget is easy to manipulate as it does not consider previous year's expenses
or income in preparation of the forecast.
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M3 Use of planning tools and their application in forecasting budgets:
There is always a requirement of using different planning tools in preparation of budgets.
These tools are a useful asset for the company as it helps Oshodi PLC decide the price to be kept
for its different flavours of JOJO fruit juices. Different methods of budgeting also play a crucial
role in producing a forecast for future expenses & losses during the forthcoming year. They
include zero-based, fixed, flexible, capital, operational budget etc. These tools help the company
in producing a forecast from scratch without considering any prior year's estimate, analysing
various investment appraisal techniques by which an organisation can effectively invest in a
project.
TASK 4
P5 Management accounting techniques used to identify financial problems:
On a day-to-day basis, companies can face various financial problems which are
mentioned below:
Late payment from creditors: Most of the suppliers tend to sell their products on bulk
basis as this helps them in maintaining their client base and having good connections with the
customers. In the long-term, Oshodi PLC can face a downfall in profit margin if they continue to
give extended credit terms to the suppliers.
Sudden expenses: These expenses can arise in case of loss due to fire, loss of theft etc.
In such cases, the management team of Oshodi PLC is advised to take out some amount from
the reserves in order to use them if any unforeseen expense arises.
Improper money management: This can arise if Oshodi PLC appoints those people
who do not have the knowledge of managing funds for different activities in an organisation. For
that purpose, the company should hire supervisors for each individua Oshodi PLC l department
and then allocate funds to them so that proper management of finances is carried out.
In order to identify and resolve financial problems in a company, following measures
should be considered:
Key performance indicators: These are the indicators which measure performance of
organisational activities. This can be further categorised into financial as well as non-financial
which analyse the profitability as well as liquidity position of a company. It is an indicator by
which a critical success factor can be achieved (Mihăilă, 2014). This is required by managers to
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assess the overall growth of the company by making planned decisions which can lead to the
expected target. It is also used as a tool to identify and resolve financial problems which can
relate to unforeseen expenses. In order to avoid it, Oshodi PLC is advised to maintain a reserve
out of the profit to deal with this situation.
Benchmarking: This is a process that involves setting targets for different activities so
that it becomes easy to achieve them by following standards. It also measures performance of a
company's products or services with those considered best in the business. If proper benchmarks
are set then managers of Oshodi PLC will be able to attain welfare of the firm (Soltes, 2014). To
identify and resolve financial problems of improper money management and late payment by
creditors, the company should keep a track of all monetary transactions. It can also compare the
extended credit policies offered by other business enterprises who are considered to be best in
the industry.
Financial governance: This includes ability of a firm to analyse and identify various
financial activities taking place in an organisation. In relation to this, Oshodi PLC appoints well
efficient staff who can deal patiently with the financial problems. They can be improper money
management, sudden expenses or late payment by creditors. In order to resolve these issues,
financial governance is used by companies to record & analyse different monetary transactions,
credit policies offered by competitors etc (Tillema and van der Steen, 2015).
A comparison of how different companies use these planning tools to identify and resolve
financial problems is mentioned below:
Oshodi PLC Cooks the Bakery
The managers of the company resolve
various fiscal issues with the help of
financial governance and some specific
rules and regulations as prescribed by the
law.
The issue of improper money management
can be dealt by setting appropriate
benchmarks and key performance indicators
by which Cooks the Bakery can monitor the
availability of funds.
Oshodi PLC resolves the issue of late
payment from creditors with the use of job
order costing system. As this system plans,
organises and performs every task as per
Cooks the Bakery solves the problem of
sudden expenses with the help of inventory
management system by stocking up all the
required raw materials which will be used in
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need & desire of the consumer. making of sandwiches.
M4 Analysis of how financial problems can lead an organisation to sustainable success:
The role of management accounting in order to solve the financial problems and
achieving and retaining sustainable success can be described with the below points:
 Various management accounting tools such as standard costing, marginal costing, break
even analysis, absorption costing, etc. helps in various decision-making processes.
 Managerial accounting provides different planning tools like budgets and reports which
assist the management in estimating and planning ultimate goals for success of the firm.
 It also provides financial governance tools and techniques which helps in finding out
financial problems and offer sustainable solutions for resolving the issues.
D3 Planning tools respond appropriately to solving financial problems to lead organisations to
sustainable success:
The planning tools provided by Management accounting process are very useful in
identification of financial problems. The planning tools like cash and capital budget are helpful
in providing the information regarding financial and investing problems that may arise in the
organization within a specific time period and tools like KPI technique and benchmarking
process are optimum ways in identifying internal and external controllable financial problems.
With the help of management accounting tools such as financial governance, these monetary
issues can be recognised before they arise and effective and impressive solutions like following
accounting standards, making provisions, etc. can be adopted on time which helps Oshodi Plc in
achieving sustainable success.
CONCLUSION
It can be concluded with the help of above report that different managerial accounting
principles and techniques helps the management in deciding and planning organizational aims.
Oshodi Plc needs to apply all accounting systems and prepare accounting reports properly in
order to perform daily functions without any hurdles. It can also be included that different
planning tools and methods like financial governance is essential to solve fund and money
related issues on time and achieving business goals and attain success.
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Management accounting. 2019. [Online]. Available through:
<https://en.wikipedia.org/wiki/Management_accounting>
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